Question And Answer
Subject: Is a s. 271(1)(c) penalty order void if AO does not strike off the irrelevant parts of the notice?
Category:  Income Tax
Asked by: Shashank
Answered by:
Tags:
Date: August 28, 2019
Query asked by Shashank

We have recieved a notice dated 20th August 2019 from the Income-tax Officer under section 271(1)(c) read with section 274 of the Income-tax Act, 1961.

In the notice the A.O has not struck off the portion of concealment of Income and furnishing inaccurate particulars of income.

Also, in the assessment order the AO has recorded satisfaction stating that the assessee has concealed the Income and/or furnished inaccurate particulars of his income.

Is such initiation of the penalty proceedings valid given the ambiguity and vagueness of the assessment order and the notice?

Please advise urgently as we have to file a reply to the notice immediately.

As per the judgements of the Hon’ble jurisdictional High Court in the case of CIT Vs. Shri Samson dated 05-01-2017 Perinchery as well as the judgment of Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory 359 ITR 565, the issue of initiation and levy of penalty u/s.271(1)(c) of the I.T. Act, 1961 and the issue relating to recording of satisfaction by the AO are invalid.

It is a clear case that the AO initiated the penalty proceedings for the offence stating that “the assessee has concealed particulars of his income” and levied the same stating that the “assessee has concealed the income or furnished the income or furnished inaccurate particulars of such income”.

This means that the AO did not have clarity of thought and AO suffered from ambiguity in his mind with regard to the applicable limb of clause (c) of section 271(1) of the Act to the facts of the case.

TThe penalty order of the AO falls short of legal requirement on the issue of recording of satisfaction.

Such penalty order is unsustainable in law legally.

The manner of initiating and levying of penalty without making reference to the specific limb of clause (c) is unsustained. AO is under obligation to specify the correct limb at the time of initiation as well as at the time of levy of penalty. Therefore, the penalty levied by the AO is unsustainable on technical grounds.

This view is supported by the judgment of Hon’ble jurisdictional High Court in the case of CIT Vs. Shri Samson Perinchery as well as the judgment of Hon’ble Karnataka High Court in
the case of CIT Vs. Manjunatha Cotton and Ginning Factory (supra).

In a recent case, the Mumbai Bench of the Tribunal in the case of Sachin Manohar Deshmukh Vs. ACIT – ITA No.3767/Mum/2016, dated 23-03-2018 has dealt with an identical issue and quashed the penalty order of the AO. The operational para No.12 of the order of the Tribunal is extracted here as under :

“12. We have given a thoughtful consideration to the issue before us, and after deliberating on the facts are of the considered view that now when the A.O after recording his satisfaction had initiated the penalty proceedings in the body of the assessment order for furnishing inaccurate particulars and concealment of income, therefore, putting the assessee to notice and calling upon him to explain as to why penalty may not be imposed on him under Sec. 271(1)(c) for concealment of income or furnishing of inaccurate particulars of income, followed by imposing of penalty under Sec. 271(1)(c) in his hands for “furnishing of inaccurate particulars of income‟, can in no way be construed as having fairly put the assessee to notice as regards the default/defaults for which penalty was sought to be imposed in his hands.

We are of the considered view that a failure on the part of the A.O to clearly put the assessee to notice as regards the default/defaults for which penalty under Sec. 271(1)(c) is sought to be to be imposed on him, has to be visited with and accorded the same treatment as in a case where the A.O had failed to strike off the irrelevant default in the ‘Show cause’notice, because, in both the situations the assessee is not informed and rather is left guessing of the default/defaults for which he is being proceeded against for.

We thus in the backdrop of our aforesaid observations are of a strong conviction that as the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the default/defaults for which he was being proceeded against, therefore, are of the considered view that the penalty under Sec. 271(1)(c) of Rs.12,14,140/- imposed by the A.O in clear violation of the mandate of Sec. 274(1) of the Act, cannot be sustained.

We thus not able to persuade ourselves to subscribe to the imposition of penalty by the A.O, therefore, set aside the order of the CIT(A) who had upheld the same. The penalty of Rs.12,14,140/-imposed by the A.O under Sec.271(1)(c) is quashed in terms of our aforesaid observations.”

In view of the above discussion, I am of the opinion that the levy of penalty is not justified.



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